Challenges to Muskrat Falls produce oppportunities

Last week produced two major challenges to the Muskrat Falls hydroelectric project.

The Nova Scotia Utility and Review Board ruled the Maritime Link between Newfoundland and Cape Breton could proceed only if Nalcor provided Emera with enough market-priced power to yield a reasonable cost for customers.

And Hydro-Quebec went to court to block Nalcor’s plan to divert some flows from the existing Upper Churchill Falls to Muskrat Falls when needed at the new facilities. The Quebec utility insists on what it claims are its rights to that water.

It waited to lodge its challenge until after Muskrat Falls was under construction, potentially leaving Nalcor no choice but to seek a settlement that could continue its dependence on Quebec for Churchill development.

Like most other challenges, which may seem daunting at first, these issues can almost certainly be resolved and possibly with real benefit to Newfoundland and Labrador and all of Atlantic Canada.

Before getting to the possible solutions, it should be noted that these issues arose largely because the Newfoundland and Labrador government had ruled out any regulatory review. That meant the Hydro Quebec claim, already known at the time Muskrat Falls was proposed, could not be objectively examined before ground was broken.

It also left the Nova Scotia Board as the sole regulatory body in the region, capable of extending its reach into Newfoundland and Labrador.

The effect of the N.S. UARB ruling will be to require that Nalcor divert to Nova Scotia some power held back for later local economic development or open market sales.

The economic result could be just the same, and the risk to Newfoundland and Labrador ratepayers would actually be reduced.

Alternatively, Nalcor could keep the power and subsidize Emera’s market purchases if they exceed the Nova Scotia utility’s target price.

The UARB’s action was in line with recommendations I had made in a paper published by the Atlantic Institute for Market Studies (AIMS).

It allowed the Maritime Link to proceed, while providing protection to Nova Scotia customers and lowering the risk to ratepayers in both affected provinces.

As for the Hydro-Quebec problem, Nalcor would probably like to find a way to keep Muskrat Falls free of any influence by the neighbouring utility, should it not prevail in court battles over water flows.

The answer may be in flowing power rather than water. Nalcor is entitled to 300 megawatts of power from the existing Churchill Falls facilities, which it now sells in the U.S. market.

It could try to shift that electricity entitlement to flow through the transmission lines built for Muskrat Falls east and south. It would then be able to maintain full power output from the new project as planned.

There would be some financial loss to Nalcor in those hours when the power had to flow from Churchill to Muskrat Falls instead of to the U.S., but it would remain free of any new Hydro-Quebec influence on its Labrador hydro projects.

Even more important, when not used to support Muskrat Falls, the power could find a market in Atlantic Canada.

In a second AIMS paper, a colleague and I proposed that the four Atlantic provinces consider creating a power pool.

Thanks to the Maritime Link, a pool would allow Nalcor’s hydro power to flow to the other three provinces whenever available, lowering energy costs throughout the region and guaranteeing sales by Nalcor.

An incidental effect would be to deprive Hydro-Quebec of the revenues it gets from allowing Nalcor to transmit its 300 MW across its lines.

Seen in this light, the two developments last week, fraught with unwanted problems for Nalcor and possibly endangering the Muskrat Falls project itself, could yield positive results.

The Maritime Link issue would be resolved. The region could be assured of a reliable supply of Nalcor hydropower, which would at the same time provide an assured revenue stream to Nalcor.

To accomplish these goals, the four Atlantic Canada provinces would have to move ahead from their prolonged discussions about electric co-operation to action.

With a power pool, they could do so without giving up any ownership or control over their own generating resources.

In the process, Newfoundland and Labrador would have found a way, admittedly at some relatively small cost, to have turned away from its ongoing difficulties with Quebec and toward a more co-operative relationship with its Atlantic neighbours.

Newfoundland and Labrador might have to trade its hopes for serving a future provincial market for an assured regional market with less risk.

In other words, the notion of “recall” might give way to “region.”

In Nova Scotia itself, where the UARB has proved to be an effective regulator, both allowing the project and protecting customers, it should be given the full range of regulatory supervision over the Maritime Link that it has sought but has thus far been denied to it.

At the same time, the restoration of some regulatory overview in Newfoundland and Labrador would also make sense.

Gordon L. Weil is the author of Atlantic

Institute for Market Studies publications on regional electric matters. He is a former chair of the U.S. national organization of state

Comments

Comments

Your name*Email*Comment*

Recent comments

MR SQUEAKER

August 01, 2013 - 22:56

The CF(L)Co Shareholders' Agreement also ensures a power supply at reasonable rates for Western Labrador. Under the 1969 Power Contract, Hydro-Quebec had the right to acquire, at 1969 Power Contract prices, the 225 MW block of power dedicated to Labrador West when the current arrangement expires in 2014. With this new agreement, Hydro-Quebec no longer has that right. Instead, CF(L)Co will distribute the power in Labrador West at reasonable commercial rates. This means a secure power source for Labrador West and the profits will stay within CF(L)Co.
"An update on the Churchill River Power Project will be given in the coming weeks," Grimes added.
Media contact: Jennifer Lilly, (709) 729-2183 .
1999 07 15 5:20 p.m.

When the Supreme Court of Canada hears the Muskrat Fall's case, who thinks NL will prevail over Quebec? Probably the same percentile of people who think Bigfoot and Elvis are shacked up in Atlantis at the moment.
This project has always been a "Make Work" exercise for NALCOR, and a way for millionaires to become multi-millionaires.

The 300 MW of recall includes about 170 MW or so used in Labrador. Therfore the actual sales through Emera is about 130 MW. Regardless of your long rambling dissertation, Muskrat will leave NL taxpayers subsidizing power into the mainland grid. You cannot develop for 30 cents and sell for 8 cents per Kwh without subsidizing it. No matter how you look at it the giveaway of 20 % to NS for free is already too much for NL residents to absorb. We have given enough to Quebec already.To give it all to mainland Canada makes us look stunned 'er than stunned bye.

Do everybody a favor...and call Charles Murphy...The one the liberal said no to on July 5/2013...Concerning Muskrat Falls...You will learn from him...That this project isn't so bad...as everyone think...But there is benefits in it for the province of n&l...And less burden on the back of the taxpayers.

John Smith says HQ is entitled to a block of power , not water. Hq would like to control the water flow to their advantage, as the upper Churchill power is just of their overall hydro generation. Likewise , Nalcor wants to control the upper Churchill flow to maximize the Muskrat generation. It seem sclear that HQ has priority to use the water flow as they see fit, and not be subject to Nalcor wishes. It's not just a block of power at question. I think HQ will prevail. What genius is the architech of this scheme, Gilbert Bennett? And what idiot would sanction this project with certainty on this question?

One has to give John "Steve Kent" Smith credit for attempting to turn this sow's ear into a silk purse. The poor man is spinning this sad tale faster than a gyroscope, and hoping for the same stabilizing effect. Good luck with that, "John", your efforts are more like those of a hamster in an exercise wheel - great amounts energy expended to little useful effect. Now, if only we were able to connect a generator to your rapidly spinning Muskrat hamster wheel, we could then harness the abundant output for our domestic energy needs.....

This proposal by Mr. Weil, is nothing more than a power grab by the big business interests in the other Maritime provinces for a sweet deal at the expense of ratepayers in NL. There is no way they can get power from this province that will not be heavily subsidize by the people of NL...so how does that help our cause? Furthermore, it would replace one exploiter, Hydro Quebec, with another, the Maritime Provinces. There is NO way to make this work from an economic perspective....the cost is simply too high and continues to rise. It is an economic crippler in the long term and I see no way out of it, other than to cut our losses and abandon this ill-conceived plan. Even developing power for Labrador mines is highly questionable notion and one that should be subjected to much higher levels of scrutiny.

Mr. Weil is a knowledgeable commentator on energy markets in eastern North America. He has, in the past, been critical of the Dunderdale government for failing to submit Muskrat to the PUB for an unrestricted, independent review of its economics. That said, Mr. Weil's column in the Telegram - and his past writings on Muskrat - must be read with some degree of caution. What you think of Muskrat - the old and new challenges facing it - is largely dependent on whose interests you have in mind. In aligning himself with the Atlantic Institute of Market Studies (AIMS), Mr. Weil has effectively adopted a Maritime Canadian bias. Although the institute has some modest board representation from NL, it is essentially a lobby group for large Maritime business interests. With names like Risley and Irving heading up its board, it should come as no surprise that it has a pronounced right-wing, big business, anti-government, anti-tax, anti-regulatory view of the world. Mr. Weil's geocentric bias is especially evident in today's Telegram column. He would have us believe that the two new threats facing Muskrat - Quebec's court challenge and NS's UARB ruling - are actually blessings in disguise. Don't believe it! As a hedge against Quebec prevailing in court, he recommends physically de-coupling Muskrat from Churchill, using NL's 300 MW recall to compensate for the lack of access to the Smallwood Reservoir. That not only raises the cost per megawatt of new installed capacity, but trades open U.S. market access through Quebec for restricted access via the Maritimes. He then suggests that diverting more power to NS - to satisfy its UARB - would lower the economic risks for Newfoundland. The truth is you can't enhance Muskrat's already desperate economics by further restricting its market access. If Dunderdale capitulates to the UARB, which according to the Chronicle Herald she has pledged not to do - she would effectively be replacing one mainland Canadian extortionist for another. Just as Quebec now strips Churchill power of all Newfoundland profits at the border, so too would Nova Scotia if Mr. Weil's suggestion is acted upon. No, Nova Scotia needs to decide whether or not it can live with its original deal - 20% of the cost for 20% of the power. If not, then - as I have previously suggested as being in the best interests of this province - NALCOR must abandon the Maritime Link and, with it logically - the Island link. It would leave the development of a smaller block of power at Muskrat to fuel the industrial and domestic needs of Labrador in a manner that minimizes - but hardly eliminates - the long term damage to this province's economy. It's called 'making the best of a bad situation'.

This project was and is designed for the purpose of exporting energy and thereby providing a revenue stream for Nalcor (and thereby bypassing the 1969 contract with Quebec).... However, the Supreme Court has previously ruled such an act as being illegal. THAT is why Nalcor keeps saying the project is for the purpose of providing power to the island, because to say otherwise would subvert Quebec's 1969 contract --- but we all know the difference -- and so will the Supreme Court. If the island really had the need for this power, we may have had a case --- but we do not.

Of course, substitute the economic growth of Quebec (which we have done in the past and are still doing by way of the Upper Churchill), with the economic benefit of the Maritime provinces --- in both cases at the expense of economic growth in NL and at the cost of the NL ratepayer.

The NL government did not rule out regulatory review. This project has been scrutinized by so many organizations, on so many levels it is becoming a cottage industry. It was brought before our PUB, 10,000 pages of information, hundreds of exhibits, millions of dollars, all to have the PUB come back and say...we don't have a clue...It also went to Navigant, MHI, and various environmental reviews on both federal and provincial levels.As far as NS goes, they want to buy our excess power for market rates...great. As far as Quebec goes, they don't have a prayer trying to gain control of water in another province, they are entitled to a block of power...not water. A judge threw out Brad Cabana's case, and the same will happen with the quebec nonsense. The bottom line is that this project is for the supply of power to the people of NL....and no one else. Keep that in mind and everything else is just noise...

More misinformation from Kathy's lapdog. The PUB's dissatisfaction with Nalcor's plan was an indictment of Nalcor's incompetence, not an admission of ignorance by the PUB. --------more of the usual hot air from a PC loser.

Joe

July 31, 2013 - 12:29

The only ones to give a finding are those specifically performed for the Government or Nalcor. I don't class them as independent reviews. What were Dunderdale and Nalcor afraid of?

John Smith

July 31, 2013 - 14:18

I am no one's lapdog Tony. The PUB came back and said they didn't have enough information to make a decision, after they were granted an extension, given an extra million dollars...and on and on...so the one who is misinformed is you sir. I state the fact that the PUB did not return a decision...FACT...you say they were dissatisfied with Nalcor's plan? That is a blatant lie...

Tony Rockel

July 31, 2013 - 18:00

You say I'm lying? That's rich, coming from someone who only last week made the ludicrous claim that the MF project is "on time and on budget".
I am not at all surprised that the PUB still wasn't able to approve the project based on what NALCOR had given them. NALCOR's projections were at best nebulous and at worst, patently phoney. Anyone with the first clue about what's happening in the energy industry today (that is anyone not still in the dinosaur era) can immediately see that the MF project runs counter to every engineering and economic principle that's current today. Ed Martin admits to not having read the Edison Electric Institute report on disruptive technologies, which just goes to show the level of ignorance that informs NALCOR and our troglodyte PC government. And if the MF project is such a brilliant idea, why the need for Bill 29? MF is just a moneymaker for a small group of fat cats who don't give a damn about the people of NL.

Concerned

July 31, 2013 - 18:22

john smith. The project will die in Nova Scotia. Our own Pub were prevented from reviewing the emera deal. The issues we now face would have been disclosed if there was free oversight in NL. The PUB could not decide because they were not allowed to look at the full deal. It was a sham, which will come back to haunt your friends.

concerned

July 31, 2013 - 06:21

I would agree with Mr. Weil stating that regulatory oversight in Newfoundland would make sense. However, I disagree with him that bringing NS, and the other Atlantic Provinces more fully on board would lower our risks. Newfoundlanders are paying 23 cents a kwhr for muskrat power. Nova Scotians are paying 15, but they want to reduce that to 9 cents by having access to the surplus. Nalcor can not provide any firm committment on this surplus power. If they did it would INCREASE the risk to Newfoundlanders. Any firm committment of energy to NS would likely mean that we would continue to require the use of Holyrood, with all the expensive upgrades. This is a real mess, and it is entirely the fault of the Provincial Government by not allowing the PUB from completing an integrated demand assessment on the island, which included the committment to Emera. It is amazing that the delivery of 20% of the power to NS was not examined by the PUB, when it determined what the lowest cost option was.

We will not pay 23 cents a KWH...that is a lie...the NL government did not prevent the PUB from reaching a conclusion, that is a lie...

concerned

August 24, 2013 - 08:31

john. during the pub hearings nalcor provided the incremental unit cost for muskrat falls energy. it was 23 cents per kwhr in 2017. go to this link. http://www.pub.nl.ca/applications/MuskratFalls2011/files/rfi/CA-KPL-Nalcor-27-Rev1.pdf
it is very clear. The issue is that Nalcor has consistently confused matters by talking about the blended rate, which would be less.
also during the pub hearings nalcor consistently refused to talk about the emera deal. it was a farce because of the reatricted terms of reference.